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5 Small Business Loans and Funding Alternatives to Selling Equity

January 4, 2013

In the current environment, it can be tough to get the funding you need for your business; whether you are starting up or trying to expand. It can be difficult to get a loan from a more traditional bank. Some businesses look for ways to give away equity in the company, with the help of venture capitalists. However, many small business owners are reluctant to give away ownership of their companies in that way.

You don’t need to sell equity to raise money like they do on Shark Tank. It’s possible to get the funding you need without giving away part of your business. Here are some alternatives:

1. Kickstarter

This is one of the more popular ways for a business to raise money. In order to use Kickstarter, though, you have to fund a specific project. So, you need to raise the funds to produce a particular product, or accomplish something very specific. You can’t just raise money for your business in general.

You can raise money to get things going, and then sell the results to raise still more money. In return for the generosity of others, you generally offer perks. This usually means a product, or some other gift. You are given the money, and send a gift in return.

2. Kabbage

If you have a more established business, Kabbage can help you with the cash flow. Many businesses require working capital, and Kabbage can keep things running smoothly. The company actually offers you a cash advance â€“ it’s not a loan. You receive an advance, based on your business income, and other factors. You can use that advance to purchase more inventory, or hire more staff, or purchase equipment. You pay a fee, and you have a six-month payment plan to pay back the advance. It’s ideal for helping small business owners keep things running smoothly.

3. Amazon Lending

This is a relatively new service from Amazon. It’s also for the more established business owner. In fact, you have to be a merchant selling items on Amazon. You can apply for a loan to purchase inventory so that you can boost the amount you are selling on Amazon. If you are approved, the amount is added to your seller account, and your payments are deducted from that same account each month. The interest rate is right around 13%. For Amazon sellers who wish they could expand their inventory, but lack the capital, this can be a viable choice. Even though the interest rate is high, it’s still lower than a credit card.

4. Account Receivable Factoring

Another interesting choice for the established business is account receivable factoring. With this set up, you sell your invoices to another party at a discount. It’s a way to keep the cash moving. Someone pays you for the receivables, and then collects on the invoices. You don’t get as much as the receivables are “worth,” but you do get immediate capital that you can use for a number of business purposes. You can also participate in “advance” factoring. Your accounts receivables to the third-party, called a factor, for 70% to 85% of the value of the receivables. Once the invoices are paid, you receive the remainder â€“ minus the commissions and fees charged by the factor.

5. Peer-to-Peer Lending

If you are starting a business, or even if you are expanding, P2P lending can provide you with a way to get the funding you need.Â Lending Club and ProsperÂ can set you up with lenders who â€“ paying $25 at a time â€“ can help you fund your business. Interest rates are generally competitive, and depend on your credit history. Getting a P2P loan is generally easier than getting a loan from a more traditional bank.

There are more options than you might think when it comes to funding your small business. Take the time to look around and consider your options. You might be surprised at what you find!

Are you seeking a business loan? What are you looking to do? What type of loan or funding alternative do you think you’ll use?

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Miranda writes about personal finance almost every day. An experienced freelance writer, she's covered your money online and in print from every angle and is always looking for new ones.